At UK£15.73, Is Compass Group PLC (LON:CPG) Worth Looking At Closely?

Today we're going to take a look at the well-established Compass Group PLC (LON:CPG). The company's stock saw a decent share price growth in the teens level on the LSE over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Compass Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Compass Group

What is Compass Group worth?

The stock is currently trading at UK£15.73 on the share market, which means it is overvalued by 35% compared to my intrinsic value of £11.63. This means that the opportunity to buy Compass Group at a good price has disappeared! Furthermore, Compass Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Compass Group look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to more than double over the next couple of years, the future seems bright for Compass Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in CPG’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe CPG should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on CPG for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for CPG, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Compass Group, you'd also look into what risks it is currently facing. At Simply Wall St, we found 4 warning signs for Compass Group and we think they deserve your attention.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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